Income Inequality Has Intensified Under Bush

by Guest Blogger,
3/21/2006

Though the Bush administration continues to laud the strength of the economy and the success of its economic and tax policies, a large percentage of Americans are continuing to struggle to make ends meet as income growth has become increasingly concentrated at the top of the income scale. Income inequality, in fact, is at an all-time high, illustrating that current tax, budget, and wage and employment policies are all not working in favor of average American families. The country experienced relatively broad-based wage growth during the latter part of the 1990's, but this growth ended with the 2001 economic downturn. Growth in real wages for low- and moderate-income families began to slow, and by 2003 wages began to decline and have not picked up in real terms. The economic recovery after the recession, one of the weakest recoveries on record, has not been diverse enough to generate the kind of income gains among low- and middle-income families seen over the last decade.
This real wage stagnation comes despite economic expansion over the last two years, relatively strong Gross Domestic Product (GDP) growth of late, and record highs for corporate profits in many sectors. These gains have not been reflected in job and wage growth across the board for averages workers. Real hourly wages fell for most low- and middle-wage workers by 1 - 2 percent last year and have not increased since 2000 after adjusting for inflation. In addition, the Federal Reserve recently reported in its Survey of Consumer Finances that average income for American families declined 2.3 percent between 2001 and 2004 after adjusting for inflation.
Compounding this trend has been Congress's utter inability to pass even one minimum wage increase in the last nine years. The federal minimum wage still sits at $5.15 per hour and has lost over 17 percent of its purchasing power since 1997. In 2005, minimum wage workers earned only 32 percent of the average hourly wage and in fact, the wage would have to rise to $8.20 just to reach half of the current average hourly wage. If Congress fails raise the minimum wage this year, it will mark the longest stretch the wage has remained unchanged since it was instituted in 1938 and the greatest inequality between minimum wage and average wage earners since the end of World War II.
The connection between the drastically low minimum wage and growing economic inequality seems to have escaped notice only in the nation's capitol. Eighteen states have now enacted higher state minimum wages, and many others are currently considering increases of their own. According to the Ballot Initiative Strategy Center, as many as 30 states could consider legislative proposals this November to increase the minimum wage or tie it directly to inflation.
Other Bush administration policies have contributed to these negative income trends, particularly the regressive redistribution of federal revenues through the President's tax cuts. The Bangor Daily News summed up the problem succinctly:

"Suppose that the administration's tax cuts, which began in 2001, remain in effect until 2015. Over these 15 years, more than half of the tax cuts - 53 percent - will go to people with incomes in the top 10 percent, according to studies commissioned by The New York Times. And 15 percent of the cuts will go to the top one-tenth of 1 percent of taxpayers. By 2015 the tax cuts, if retained, will provide average yearly tax savings of $23 to taxpayers in the bottom 20 percent. The wealthy will fare better. The top one-tenth of 1 percent of all taxpayers will save an average of $196,000 a year, or a total of $2.9 million over the 15 years. By 2015, the top 1 percent of taxpayers will pay a lower share of total taxes than they did in 2001."

Far from distributing money back to average American families, the Bush tax cuts overall have profited the super rich, leaving the vast majority of Americans with comparatively little or nothing to show for it. This has only made the distribution of income and wealth across America more skewed.
Showing further evidence of an exacerbated income gap, the Center on Budget and Policy Priorities and the Economic Policy Institute recently released Pulling Apart: A State-by-State Analysis of Income Trends, a study highlighting the growing gap between rich and poor. The study finds that this gap -- mainly between the highest-income families and low- and middle-income families -- grew significantly between the early 1980s and the early 2000s. During this period of time, the incomes of the bottom fifth of families grew more slowly than the incomes of the top fifth of families in 38 states; the incomes of the rich grew by an average of 62 percent, while the incomes of the poor grew by an average of 21 percent. Additionally, in 39 states the incomes of the middle fifth of families grew more slowly than the incomes of the top fifth of families.
The five states with the largest income gap between the top and bottom fifths of families, according to the study, are New York, Texas, Tennessee, Arizona, and Florida. The five states with the largest income gaps between the top and middle fifths of families are Texas, Kentucky, Florida, Arizona, and Tennessee. Generally, income gaps are larger in the Southeast and Southwest and smaller in the Midwest, Great Plains, and Mountain West.
These trends indicate a fundamental inconsistency and unfairness within our economic system that threatens the well-being of future generations. Jared Bernstein, a senior economist at the Economic Policy Institute, makes this point, explaining, "When income growth is concentrated at the top of the income scale, the people at the bottom have a much harder time lifting themselves out of poverty and giving their children a decent start in life. A fundamental principle of our economic system is that the benefits of economic growth will flow to those responsible for their creation. When how fast your income grows depends on your position in the income scale, this principle is violated. In that sense, today's unprecedented gap between the growth of the typical family's income and productivity is our most pressing economic problem."
Growing income inequality in America did not happen by accident and it cannot fix itself. It will take proactive changes from policy makers at the state and national level to help reduce the gap and truly level the economic playing field to create a more robust environment for opportunity for all. Raising the minimum wage, as well as adjusting it annually for inflation, would be one small but necessary first steps toward reducing the enormous income disparity in America today.
Despite the White House's selective use of economic data and sweeping generalizations about the overall strength of the economy, mining the data actually paints a much drearier picture, one in which most Americans are not making progress but actually losing ground, while the wealthy prosper more and more. This trend will only worsen unless more just and sensible fiscal and economic policies are adopted.